Question

6-40. (LO 1, 2 ) Assume that you are auditing a nonpublic U.S. client. You have obtained evidence that appears to be inconsistent with other evidence documented in the audit workpapers. Refer to the Auditing Standards Exhibit inside the front cover of this textbook and identify the appropriate standard that will help you address this issue. What guidance does that standard give you?

Answer 1

AUDIT DOCUMENTATION

INTRODUCTION

Audit documentation is the written record of the audit procedures applied, evidence obtained, and conclusions reached that support the auditor's

• (a) representation that the audit was performed in accordance with GAAS and
• (b) opinion expressed on the financial statements

THE PURPOSES AND BASIC REQUIREMENTS OF AUDIT WORKPAPERS

The main purpose of workpapers, as identified in SAS No. 103 (AU 339.03), is to provide the principal support for the auditor's report that includes:

The representation that the audit was performed in accordance with generally accepted auditing standards.

The opinion expressed (or disclaimed) on the financial statements.

Support for Auditor's Report

Auditors must prepare audit documentation with an appropriate amount of detail that provides a clear understanding of the work performed, the evidence obtained along with its source, and the conclusions reached. SAS No. 103 emphasizes that audit documentation is a critical component of audit quality. An auditor's support for representations in the audit report is not strictly limited to what is in the workpapers. The primary need to support the representations in the audit report arises in internal and external quality control reviews. Another less frequent, but important, use arises if the quality of the audit is questioned in litigation, regulatory proceedings, or ethics disciplinary actions. The workpapers are the principal record of the work done and conclusions reached, but an auditor, in defending the quality of the audit, might supplement the audit documentation by other means. According to SAS No.103 ( AU 339.11):Oral explanations on their own do not represent sufficient support for the work the auditor performed or conclusions the auditor reached but may be used by the auditor to clarify or explain information contained in the audit documentation. It is, however, neither necessary nor practicable to document every matter the auditor considers during the audit

Other Purposes of Workpapers

• Aids in the Planning and Performance of the Engagement
• Provides Guidance for Newer Team Members.
• Provides Audit Evidence for Future Years.
• Reinforces and Demonstrates
• Aids in Internal Supervision and Review
• Aids in External Review.